NEW YORK, July 23 (Reuters) - Walnut Place, an entity that
had challenged a proposed $8.5 billion settlement between Bank
of America Corp and investors in failed mortgage-backed
securities, has withdrawn its objections to the deal.
The development on Monday was a step forward for Bank of
America as it tries to clear up liability for toxic securities
issued by Countrywide Financial Corp, the mortgage lender it
acquired at the height of the financial crisis in 2008.
The agreement was reached in June 2011 between Bank of New
York Mellon, acting as trustee, and institutional investors
including BlackRock Inc, Metlife Inc and Allianz SE's Pacific
Investment Management Co.
Walnut Place, a proxy for Boston-based hedge fund Baupost
Group, had invested more than $1 billion in the securities. It
did not participate in settlement negotiations and later
complained that the deal was inadequate.
Baupost Chairman Seth Klarman declined to comment on Monday
on why Walnut Place had withdrawn its objections. Walnut Place's
attorney, Owen Cyrulnik of Grais & Ellsworth, also declined to
The decision came just weeks after a New York state appeals
court upheld a decision dismissing a lawsuit brought by Walnut
Place in February 2011 demanding that BofA buy back the loans.
Several of the soured residential mortgage-backed securities
owned by Walnut Place were scheduled to be sold off in the
secondary market on Tuesday, according to a database run by
Empirasign Strategies, a New York-based capital markets data
Representatives of Bank of America and Bank of New York
Mellon declined to comment on the withdrawal of Walnut Place's
Kathy Patrick, a partner at Gibbs & Bruns, a Houston-based
law firm that negotiated the settlement for the institutional
investors, said it was a welcome development. With Walnut Place
withdrawing, only a "small minority" of settlement opponents
remain, she said.
But Dan Reilly, an attorney who represents American
International Group Inc, which has also intervened in the
proceedings, said Walnut Place's decision will not end the case.
"We're still going forward," Reilly said. "We've got a
hearing next week and all the issues that have been raised are
still in play."
The decision on whether to approve the settlement, which
could become a template for deals with other banks that face
similar claims, is before Justice Barbara Kapnick in New York
state court in Manhattan.
Other objectors include the attorney generals of Delaware
and New York, who have raised questions about whether the
settlement is reasonable. The two attorney generals, through
their offices, declined to comment on Walnut Place's withdrawal.
Investors claim Countrywide breached promises about the
characteristics and quality of loans underlying its securities.
The risky loans became toxic when housing prices collapsed.
The accord covers mortgage pools with a $174 billion
unpaid principal balance.
The distressed bonds, issued by Countrywide Home Loans in
2006 and backed by Alt-A pay option ARMs, were most recently
trading at an average of about 60 cents on the dollar in the
secondary RMBS market, according to Empirasign.
The case is In re: The Bank of New York Mellon, New York
State Supreme Court, New York County, No. 651786/2011.
For Walnut Place: Owen Cyrulnik of Grais & Ellsworth.
For the institutional investors: Kathy Patrick of Gibbs & Bruns.
For Bank of New York Mellon: Matthew Ingber of Mayer Brown.
For Bank of America: Theodore Mirvis, Wachtell, Lipton, Rosen & Katz.
(Reporting by Karen Freifeld; additional reporting by Alison
Frankel and Adam Tempkin)
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